Paytm share price rallies over 3% as UBS initiates coverage with a ‘Buy’ call; sees EBITDA breakeven in FY25

Paytm share price traded over 3% higher on Tuesday as global brokerage firm UBS initiated coverage on the stock. Paytm shares gained as much as 3. 73% to 742.

20 apiece on the . UBS expects , the parent company of fintech giant Paytm, breaking even on EBITDA in FY25 and reaching a 20% EBITDA margin by FY28. It views this as a key re-rating trigger, as seen at other new-age companies such as , where investors value profitable growth more than pure growth.

The foreign brokerage initiated its coverage on Paytm with a ‘Buy’ rating and a target price of 900 per share, implying an upside of 25. 8% from Monday’s closing price. Paytm’s omni-channel payment business has earned it a 25% industry Gross Merchandise Value (GMV) share.

Its large top-of-the-funnel payment business has accelerated monetisation across merchant devices and loans. “We think regulatory issues have passed for payments and expect Paytm to benefit from a 24% CAGR in the payment player fee pool in FY23- 28E. Beyond payments, Paytm’s loan origination has grown 7x in FY22-24E, with lending partners rising to nine in FY24 from four in FY22,” said UBS.

UBS also likes Paytm’s merchant loan (ML) business, as its proprietary merchant data and daily settlement indicate early delinquency. Hence, it forecasts an overall revenue CAGR (Compounded Annual Growth Rate) of 21% for the company in FY24-28. Further, it expects Paytm EBITDA margin to gradually reach 20% by FY28.

“Paytm’s profitability has progressed, with the contribution margin improving to ~55% of revenue in FY24 and EBITDA (ex-ESOP costs) turning positive. This has been aided by deceleration in payment processing fees growth (improving payment margin) and marketing-related costs (a combined 50% of costs),” UBS said. The brokerage house forecasts the company to break even in EBITDA in FY25, aided by operating leverage and declining ESOP costs.

It believes the market is overestimating the marketing cost requirements of the business, since most of Paytm’s customer acquisitions have been done. UBS’ FY26-28 EBITDA estimates are 8-14% above consensus. Moreover, UBS believes Paytm shares are trading at a discount to its global peers.

Paytm stock is trading at 18x FY26E EV/EBITDA and FY26E 2. 2x EV/net sales, at material discounts to global payment and Indian internet peers. “We value Paytm’s core business on DCF (13.

7% COE; 20% terminal EBITDA margin, similar to those of global payment incumbents; long-term growth in line with consumption growth). We view EBITDA break-even and EBITDA growth thereafter as a key re-rating trigger,” UBS said. Paytm shares have rallied over 22% in the past one month, while the stock is up more than 34% in one year.

At 11:15 am, Paytm shares were trading 3. 61% higher at 741. 30 apiece on the BSE.

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